Correlation Between Bitcoin and Pacific West

Can any of the company-specific risk be diversified away by investing in both Bitcoin and Pacific West at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bitcoin and Pacific West into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bitcoin and Pacific West Bancorp, you can compare the effects of market volatilities on Bitcoin and Pacific West and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bitcoin with a short position of Pacific West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bitcoin and Pacific West.

Diversification Opportunities for Bitcoin and Pacific West

0.79

Correlation Coefficient

Bitcoin  Pacific West

Poor diversification

The 3 months correlation between Bitcoin and Pacific is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bitcoin and Pacific West Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific West Bancorp and Bitcoin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Bitcoin are associated (or correlated) with Pacific West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific West Bancorp has no effect on the direction of Bitcoin i.e., Bitcoin and Pacific West go up and down completely randomly.

Pair Corralation between Bitcoin and Pacific West

Assuming the 90 days trading horizon Bitcoin is expected to under-perform the Pacific West. But the crypto coin apears to be less risky and, when comparing its historical volatility, Bitcoin is 1.73 times less risky than Pacific West. The crypto coin trades about -0.16 of its potential returns per unit of risk. The Pacific West Bancorp is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,217  in Pacific West Bancorp on October 11, 2024 and sell it today you would lose (92.00) from holding Pacific West Bancorp or give up 7.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Bitcoin  vs.  Pacific West Bancorp

Bitcoin

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bitcoin are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pacific West Bancorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific West Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Pacific West is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bitcoin and Pacific West

The main advantage of trading using opposite Bitcoin and Pacific West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bitcoin position performs unexpectedly, Pacific West can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Pacific West will offset losses from the drop in Pacific West's long position.

The idea behind Bitcoin and Pacific West Bancorp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.